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Can Fitbit Stock Bounce Back From Last Week's 35% Drop?

Image source: Fitbit.

A popular workout accessory maker didn't "work out" for investors last week. Shares of Fitbit(NYSE: FIT) shed more than a third of its value last week, plunging 35.4% after the company posted mixed financial results.

Revenue climbed 23% for the period, just shy of the 24% that analysts were targeting. Earnings of $0.19 a share were less than the $0.23 it rang up a year earlier, but they were in line with Wall Street's profit estimates.

The real pain came in Fitbit's guidance. The $725 million to $750 million that it's now forecasting is just 2% to 5% ahead of how it fared during last year's holiday quarter. The adjusted earnings of $0.14 to $0.18 a share is dreadfully below the $0.75 the Wall Street pros were targeting.

The market had big expectations for Fitbit during the potent holiday shopping season, given the September rollout of Fitbit's Charge 2 and Flex 2 fitness trackers. They have been collecting generally positive reviews, but the niche leader's prediction of essentially flattish results is worrisome. Average selling prices rose by 11% during the third quarter, and if that carries through into the fourth quarter, we're eyeing an actual decline in the number of wearable fitness devices sold by Fitbit for the first time in company history.

Wall Street turns on a dime

Analysts had been warming up to Fitbit lately, with a couple of Wall Street pros chiming in ahead of the report to suggest that sales may top expectations. Analysts at Wedbush and Longbow were among the ranks of Fitbit watchers hopeful about the third quarter. That's a different tone about the near-term future following Fitbit's unsettling outlook.

Barclays analyst Matthew McClintock downgraded Fitbit to a neutral "equal weight" rating. He also slashed his price target dramatically, going from $24 to $10, concerned about the softening demand for Fitbit's wares.

He's not alone. Leerink's David Larsen is sticking to his neutral "market perform" rating, cutting his price target from $16 to $9. SunTrust analyst Robert Peck went from "buy" to "hold," concerned about Fitbit's forecasting aptitude as well as customer demand and the category's maturity. His goal from the price was lowered from $17 to $10. Analysts at Wedbush, Citi, Piper Jaffray, Morgan Stanley, Longbow, and Mizuho also downgraded the stock, taking big whacks on their price targets.

Bouncing back won't be easy, and it may not happen until we see how Fitbit fares during the now problematic holiday quarter. There could be other catalysts. Fitbit may become a buyout candidate as a niche leader at a depressed price. It could announce game-changing products. However, for now the burden is on Fitbit to prove itself worthy, and that's not an easy lift for any company.

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